1/31/2007

Possibly ticketed for departure since the sale of Owens-Illinois' blow molded container assets in 2003, O-I has made it official: Its plastics packaging business is on the auction block.

The Toledo, OH-based company had for the past two years declared the business, with sales of $770mn for the 12 months ending Sept 20, 2006, to be off-limits. But in November, with new ceo Al Stroucken about to take the helm, he hinted the property might not fit within its larger portfolio.

The property could be a highly sought-after business, indicated analyst Sangita Jain of New York-based Lehman Brothers. The segment's health-care/pharma packaging and closures operations are particularly specialized and match up well

With industry players already with similar assets (London-based Rexam, perhaps?) or wanting to broaden its impact in those sectors (Ball or Silgan, anyone?). More importantly, those assets could grow faster elsewhere than they do as core assets

At O-I, noted analyst Alton Stump of Longbow Research, Independence, OH. A cash injection could bring down debt at O-I and help it concentrate on restructuring its European glass operations, which Jain noted suffers from overcapacity and fragmentation. Evidence of its potential hold on deeppockets bidders, several analysts noted the property could fetch as much as 9 or 10 times EBITDA. That would give O-I a handsome payday in the $1 to $1.2bn range, Stump said.

Not a bad price when you consider that plastics does not fit O-I's current tunnel vision: to boost the earnings of a massive but lumbering glass business.